You are here

OMB Director Jack Lew on the Defense Cuts in the Debt Deal

The main savings feature that the debt deal (the Budget Control Act) contained--outside of the joint committee--is the discretionary spending caps. With that in mind, OMB director Jack Lew took to the OMBlog today to explain the distribution of those cuts between defense and non-defense spending (or security and non-security spending if you'd prefer).

Although the Budget Control Act only includes specific security and non-security spending caps for two years, projecting those caps to grow at the same rate over the remaining eight years of the budget window can give you ten year savings. So, how much would we save on the security/defense side?

The agreement just signed into law would achieve slightly more security savings than the President first proposed in April. Under baseline estimates, it would cut approximately $420 billion over 10 years. Assuming roughly proportional cuts, we project that of that $420 billion, $350 billion would be from the budget category of defense, and approximately $330 billion of that would be specifically from the Department of Defense. In sum, this agreement would be consistent with the President’s goal for security and Department of Defense savings as laid out in his fiscal framework in April.

Compared to the President's FY 2012 budget, the projected caps would save about $600 billion in security spending or $500 billion in defense spending, according to Lew. Of course, these numbers come with the disclaimer that none of these savings are set in stone, since after 2013, they will be determined annually by future lawmakers.

That isn't the end of the story, however. If the joint committee fails or comes up with less than $1.2 trillion in savings, then defense will have to make up half the difference. Defense Secretary Leon Panetta already has warned against the across-the-board cuts contained in the trigger, so it is no surprise that Lew came to the same conclusion.

Make no mistake: the sequester is not meant to be policy. Rather, it is meant to be an unpalatable option that all parties want to avoid. The Administration views these cuts in that way, and we imagine that both parties in Congress would as well.

We agree, but we also feel that there may be more room to smartly cut defense spending. The Sustainable Defense Task Force found close to $1 trilllion in defense savings last year and the Fiscal Commission cut about $900 billion in security savings in its plan. A closer look at defense spending, along with much needed changes to entitlements and the tax code, should be a part of a big deficit reduction plan, one that goes beyond the joint committee's mandate for savings.